Modern portfolio theory studies have shown that more than 93% of investment performance is due to asset allocation. For individual investors who attempt to follow this principle, the task of allocating investment or retirement find dollars among the thousands of marketed securities is formidable, and to be done successfully requires extensive knowledge of securities markets and investing experience. For these reasons, investing in securities was in the past done almost exclusively by trained professionals experienced in the markets and securities selection. The advent of discount brokerage services and the Internet have provided easy access to the purchase and sale of securities to virtually everyone. Although Internet based on-line trading systems have made the process of buying and selling securities very simple, they have actually increased the probability for most of losing money, particularly by those with little or no experience in long term investing.
The assets of pensions and profit sharing plans of corporations and other types of entities have also traditionally been managed by professional investors. The creation of 401(k) type self-directed retirement accounts compelled employees to make their own investment decisions, albeit from a relatively small set of plan choices. The investment allocation of retirement funds is typically done by providing employees with a list of investment funds from which to choose, and requiring the employee to designate an allocation percentage of their contribution dollars to each available find. Some basic information about the funds, such as investment objective and performance history is also provided. With only this skeletal information, plan participants are expected to correctly allocate their retirement funds for optimal return. Furthermore, there are restrictions on the frequency with which any reallocation of funds can be made.
To provide assistance to this task, retirement planning guides have proliferated, many with more practical approaches which focus on participants' projected financial needs, rather than trying to teach investment strategies. Because money management and investing has significant behavioral and emotional components, many planners make an assessment of how the participant handles or responds to these aspects of investing. This information or assessment is then used to recommend certain investments, typically mutual finds, to the participant. The participant is, however, left to make the final investment decisions on their own. So even though they have been provided with some assistance in the process, this prevailing methodology of retirement planning does not remove the participant—who is most likely a novice at investing—from making the most critical and important decisions which will directly impact their total return.
Although many different computer software-based approaches have been taken to investment and retirement account management, such systems tend to focus on data acquisition and information processing of investor profiles which are then matched to an appropriate portfolio by a professional investment manager. Financial planning software, whether creating an investor profile of including time periods of contributions and withdrawals and risk tolerance, or selecting investments which match a developed profile, all leads to the point at which specific investment decisions must be made on an individual basis for each plan participant.